BMW 2005 Annual Report Download - page 73

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The equity of subsidiaries is consolidated in accor-
dance with IFRS 3 (Business Combinations). IFRS 3
requires that all business combinations are accounted
for using the purchase method, whereby identifiable
assets and liabilities acquired are measured initially
at their fair value. The excess of the Group’s interest
in the net fair value of the identifiable assets and lia-
bilities acquired over cost is recognised as goodwill
and is subjected to a regular review for possible
impairment. Goodwill of euro 91million which arose
prior to 1 January 1995 remains netted against re-
serves. In the event of impairment and deconsolida-
tion, goodwill that has been deducted from equity is
dealt with directly in equity in accordance with the
requirements of IFRS 3.80.
The financial statements of consolidated companies
which are drawn up in a foreign currency are trans-
lated using the functional currency concept (IAS 21:
The Effects of Changes in Foreign Exchange Rates)
and the modified closing rate method. The functional
currency of a subsidiary is determined on the basis
of the primary economic environment in which it
operates and corresponds therefore to the relevant
local currency. Income and expenses of foreign sub-
sidiaries are translated in the Group financial state-
ments at the average exchange rate for the year, and
assets and liabilities are translated at the closing
rate. Exchange differences arising from the trans-
lation of shareholders’ equity are offset directly
against accumulated other equity. Exchange differ-
ences arising from the use of different exchange
rates to translate the income statement are also
offset directly against accumulated other equity.
Foreign currency receivables and payables in
the single entity accounts of BMW AG and sub-
sidiaries are recorded, at the date of the transaction,
at cost. Exchange gains and losses computed at
the balance sheet date are recognised as income or
expense.
Receivables, liabilities, provisions, income and
expenses and profits between consolidated com-
panies (intragroup profits) are eliminated on con-
solidation.
Under the equity method, investments are
measured at the group’s share of equity taking
account of fair value adjustments on acquisition,
based on the group’s shareholding. Any difference
between the cost of investment and the group’s
share of equity is accounted for in accordance with
the purchase method. Investments in other com-
panies are accounted for using the equity method,
when significant influence can be exercised (IAS 28
Investments in Associates). This is normally the case
when voting rights of between 20% and 50% are
held (associated companies).
[4]Consolidation
principles
[5]Foreign
currency translation
BMW Automotive (Ireland) Ltd., Dublin, Parkhaus
Oberwiesenfeld GmbH, Munich, Gesellschaft für
Vermietung und Verwaltung von Kraftfahrzeugen
mbH, Munich, entory AG, Ettlingen, Silverstroke AG,
Ettlingen, entory S.A. Luxembourg, Luxembourg,
and Bavaria Reinsurance Malta Ltd., Valletta, have all
been consolidated for the first time.
No subsidiaries were deconsolidated during the
year under report.
The group reporting entity also changed by com-
parison to the previous year as a result of the first-
time consolidation of two special purpose entities
and the deconsolidation of three special purpose
entities.
The changes in the composition of the Group
do not have a material impact on the assets, liabili-
ties, financial position and earnings of the Group.
[3]Changes in
the reporting entity
Group Financial Statements 62
Income Statements 63
Balance Sheets 64
Cash Flow Statements 66
Group Statement of
Changes in Equity 68
Statement of Income and Expenses
recognised directly in Equity 69
Notes 70
--Accounting Principles
and Policies 70
--Notes to the Income Statement 81
--Notes to the balance sheet 90
--Other Disclosures 114
--Segment Information 121
Auditors’ Report 125